As part of my strategy to learn more about how corporate annual general meetings are held to beef up my corporate governance experience, I have started making it a point to attend annual general meetings (AGMs) of the companies that I have invested.

So far, I have attended last year’s DBS and SPH annual general meetings and they were useful exercises in seeing how different blue-chip companies conducted their annual general meetings.

Also, one of my targets is to position myself to be experienced and qualified to become an independent director of a listed company when I am near to retirement age as this could potentially provide a second “career” of sorts when my career as an internal auditor may plateau at some stage near the official retirement age in 20+ years’ time.

Key Highlights of the Singapore Exchange Ltd AGM

I won’t repeat the details of the proceedings as they are detailed in the SGX announcements. The CEO’s (Mr. Magnus Bocker) speech is given here while all resolutions tabled at the SGX AGM as well as the extra-ordinary general meeting (EOGM) held immediately after the AGM were passed.

IT Investments and New Areas of Growth

The key initiatives that struck me from the CEO’s speech was that SGX has invested significantly in its REACH IT related initiatives and these investments in IT infrastructure would be yielding new revenue streams going forward. It was interesting to also note that SGX’s revenue is diversified to some extent in that equities trading and related fees which is adversely affected by decline in market volume under current conditions is not the only source of income for the company. Its derivative business is growing in volume and it has seen new members (brokerages) signing up with the exchange.

High Frequency Trading and Circuit Breakers

The Exchange was also moving towards high frequency trading and it was mentioned that the velocity of our market in relation to market capitalisation was about 60% well lower than 200% of European bourses and 400% for NYSE. Hence, SGX was moving to facilitate this but would implement the rules, regulations and “circuit breakers” before allowing this to happen. The CEO talked about a 12 month or so timeframe for this to happen so we may see the start of such high frequency trading occur perhaps in the following financial year.

The first resolution was held up for quite a while because one of the shareholders asked about circuit breakers to be implemented as well as querying the SGX on some dubious market transactions near close of market on specified counters. One other shareholder was harping on why SGX needed 48 hours notice for appointment of proxies when the Companies Act did not require such notification but the company secretary Ms. Joyce Fong explained that almost all companies had this requirement in the articles of association and it was more for ease of administration as they needed to cut-off the date of appointment of proxies as their internal audit needed to verify the proxies information prior to the AGM.

Holding AGMs in other countries

Another shareholder asked if SGX would be doing something about companies listed in SGX that had their AGMs outside of Singapore. The CEO and Chief Regulatory Officer Ms. Yeo Lian Sim answered that they were looking into this as currently companies listed on SGX which were domiciled in other countries still had to hold their AGMs in Singapore unless their laws required them to do so in their country of domicile.

Decline in EPS

Another member also queried the acting CFO (Co-President) MR Muthukrishnan Ramaswami on the declining trend of earnings per share which the acting CFO explained was not due to dilution of shares but more due to overall earnings impacted by the worsening market conditions especially affecting the trading volumes for equities as well as capital expenditure (CAPEX) for IT related initiatives which occurred in “Steps” or were lumpy over the years.

ASX-SGX Merger Failure

Members also questioned the wisdom of the ASX merger and spending $18m on related expenses but the Chairman Mr. Chew Choon Seng explained that hindsight was 20-20 and that both boards of SGX and ASX as well as managements of both entities thought that the value-creation from the merger would benefit both companies’ shareholders. However, the CEO explained that the merger happened during a period of political change in Australia which eventually resulted in the failure of the merger due to political pressure.

Overall, the Chairman handled the meeting well and was fairly open with shareholders even if some of them went somewhat off tangent in their questions that were not directly related to the resolution to be voted. It was interesting to note that during the AGM, electronic polling was carried out so shareholders were able to vote for every resolution.

However the number of active votes held by shareholders at the AGM amounted to less than 3 million shares against 190+ million held by institutional shareholders so the outcome of the resolutions were never in doubt as the shareholders voting could not do much.

Eye-Opening Experience

It was an eye-opening experience to listen to the key management (CEO and acting CFO) as well as the Chairman explaining the context to what we could read for ourselves in the financial statements of the company. One could also see if the CEO and Chairman were at ease or put off by the questions from the shareholders. I thought that both acquitted themselves well and shareholders queries were addressed and some leeway was given even when the questions were not directly relevant to the resolutions.

Whilst I know that my vote counts for very little, it still counted because instead of using a show of hands method, the resolutions were decided based on a poll which put in record the number of shares voting or against each resolution.

Retail investors made their unhappiness with the Chairman’s renumeration of $750,000 plus car and driver with almost half of those active and present in the AGM voting against it. But the resolution was carried since the retail investors clout was not substantial.

I feel that attending AGMs are a way to gain fundamental analysis knowledge about a company. While management and Chairman of the company may be biased in trying to spin a positive story, their explanations and answers to queries help put some context into the numbers and activities of the company involved.

All in all, taking leave to attend the AGM was worth my time and anyway, I have to clear my last year’s leave by end of December 2011 or it would lapse.

I know Musicwhiz attends AGMs, does any other one of readers here attend AGMs?

Share your experience with Panzer in the comments section.

Be well and prosper.

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